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23 September 2009
You may need to take out a commercial mortgage to buy premises
to start or expand a business, or if you are buying a business that is directly
linked to property, for example a hotel or retail outlet. Mortgages are usually
for 15 years or more and the property itself is at risk if payments are not made
Most banks and building societies offer commercial mortgages,
but their criteria must be satisfied. Most lenders require a positive personal
credit rating and clear evidence that your business is creditworthy, although
some lenders may accept applications where there is an adverse credit history.
Most lenders will apply a loan to value ratio and will expect
you to invest a proportion of your own money in the purchase. The more you are
willing to invest of your own money, the greater the chance you will have of
securing a loan for the remainder.
The ratio is the loan amount divided by the current market value
of the property expressed as a percentage. So if a property has a current value
of £200,000 and a loan is required for £150,000, the loan to value
ratio is 75 per cent.
The lender's decision will also depend on your current business
circumstances. A commercial lender will expect your business to be stable and
profitable. They may ask to see your business plan and longer term financial
projections to assure themselves that your business has the ability to make
repayments on the loan. Some lenders may impose restrictions on the uses of
commercial premises for example the ability to sublet to other businesses and
certain business concerns may be excluded altogether.
It is important to consider carefully all the terms of any
lending agreement, particularly as the loan period may be for 15 years or more.
This is a complex area and it is essential to seek specialist legal advice.
By Jane Coyle (firstname.lastname@example.org).
About the Author
Lawdit Solicitors offer services and
advice for litigation, commercial contracts, Intellectual Property and IT legal
agreements. We are experts in commercial law with a heavy emphasis on
Intellectual Property, Internet and e-commerce law. Lawdit is a member of the
International Trademark Association, the Solicitors' Association of Higher Court
Advocates and we are the appointed Solicitors to the largest webdesign
association in the world, the United Kingdom Website Designers Association.
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Article Published/Sorted/Amended on Scopulus 2009-09-30 12:37:51 in Legal Articles